Investing in a real estate property can be a challenging and time consuming process. If your investment property is out of state or in a distant area the challenges can multiply. While there are many potential benefits to investing out of state such as cheaper property taxes and bigger returns, there are many factors to consider when investing in an area you are unfamiliar with.
Choosing a market: Identifying the risks you are willing to take in order to receive a return is a crucial step in selecting a location. Investing in areas you are unaccustomed with rids you of your familiarity with economic conditions and can leave you dependent on word of mouth reviews and information. Some companies prey on inexperienced out of state investors and show properties in neighborhoods they claim are A- or B+ neighborhoods but actually are C neighborhood at best. It is recommended that you research neighborhoods and even possibly use Google Earth to conduct a virtual walk through of the neighborhood prior to investing.
State Laws: The legalities associated with each style of investing can also differ per state. Certain states have unique laws that either act in favor of the landlord or the tenant. Landlord friendly states require that tenants pay rent regardless of property malfunctions or habitability issues. While tenant friendly states offer tenants certain privileges such as the ability to self repair appliances and deduct repair expenses from monthly rent; as well as the ability to withhold rent until essential services are provided. It is recommended that you conduct thorough research regarding the landlord/tenant laws in the state you plan on investing in.
Price- to -Rent Ratios: Price to rent ratios can differ per state. According to Ali Boone of biggerpockets.com, this ratio is determined by identifying how much it costs to rent a property in a certain neighborhood versus how much it costs to own it. To determine this ratio you must divide the average value of homes in the neighborhood you plan on investing in by the average annual rent. This information is essential because it can help you determine the demand for rental properties in the region you plan to invest in. States with price to rent ratios above 21 are considered high and are ideal for investors as there will be more potential tenants looking to rent, as the price to own is often less than ideal.
There are many factors to be aware of when considering investing in an out of state property. To determine all risks and potential rates of return seek the advice of an investment specialist or experienced relator. For all your questions regarding laws, location and price to rent ratios, give Rent it Network a call and let us work with you step by step as we help you achieve all your investment goals.